The wired world of online purchasing - written on the web

These days when a manager at James Madison University in Harrisonburg, Va., wants to make a purchase he may log onto his computer, get out his American Express card, and order online. The entire transaction is completed in a matter of minutes.

It's a far cry from traditional purchasing procedures: Employees would page through printed supply catalogs to construct their lists, often unaware of volume discounts or special deals. The departments would then request a purchase order to send to the vendor, which alerted purchasing to encumber those funds for use in that transaction. When the items arrived, the invoice would be matched with the purchase order, payment would be made, and the whole transaction was recorded in the purchasing system.

John Knight, assistant vice president for finance at James Madison is in the process of moving all the university's purchasing activities online. Currently, users in specific departments and areas can make purchases online up to $2,000 through American Express. "We wanted to be able to provide greater services, and [our] vendors to get payments right away," he said, explaining some of the benefits that the university has already realized.

For this pilot phase of the project, Knight said he "looked for areas that are more techno-savvy and set small dollar limits" on purchasing. After this trial, the system will be expanded to the entire campus.

Knight cautioned other universities to double-check their technological capabilities before undertaking such a project and to "make sure vendors have secure Web sites."

He also recommended that universities determine if their "accounting system can accommodate [online purchasing], and make sure there are Web-enabling tools within the system." Because James Madison already had such tools in place, its move to partial online purchasing has been positive.

"It is a win-win situation ... People actually enjoy making purchases for themselves," Knight said.

The University of Richmond in Richmond, Va., has also moved to an internal, electronic purchasing system. Betsy Andress, director of university service/purchasing, said the university has been working on this homegrown system since 1991, when they designed a way for accounts payable to share information with purchasing.

"In the early '90s, the university began the effort to establish an integrated software system so that information could be standardized in format and shared among various campus constituencies ... In 1995, the finance module [of SCT Banner] was installed," she said.

Andress and her department have realized noticeable savings from this streamlining. "There is no comparison; the savings are tremendous," she said.

And "online requisitions can work through approval cues much faster and be converted to purchase orders easily without duplicating labor by inputting the same information several times."

This system has also made Richmond's purchasing operations much more accurate. "Once a purchase order has been cut, the transaction is recorded in the general ledger, and these funds are encumbered. Thus, online budget queries are accurate," Andress said.

Andress has found that the most important tool in her electronic purchasing operation is not a piece of software but, rather, "communication, communication, communication!"

"Not only must the top administration support this, but all facets of the campus must buy into it and be willing to talk and work through many issues," she said.

However, her overall experience has been positive. "While we are not yet a paperless operation, we have reduced storage needs and can solve problems and answer questions more efficiently by accessing information online," she said.

Companies Can Provide Assistance

Universities that don't want to go it alone can hire companies to assist the transition to online purchasing. The University of Pennsylvania has contracted with TPN Register, a Rockville, Md.-based company that helps organizations with online purchasing and cost control.

"A purchasing department is not always inexpensive to operate," Terry Welty, vice president of marketing for TPN Register, said.

The company said costs are reduced when purchasing is made easier and access is customized. First, the company determines which employees are eligible to purchase and from which set of suppliers. Then, access to a customized catalog that is tailored to the user's needs and presents products from approved suppliers is brought to the users' desktops.

This reduces or eliminates what is known as "maverick buying" the tendency for an employee to find it easier to purchase, for example, a new desk chair at the local office supply store and request reimbursement rather than wading through a lengthy, paper-based requisition process, Welty said.

When each buyer has the approved list of suppliers, universities can take advantage of contract and volume discounts, further reducing their purchasing costs, he said. TPN Register also customizes the appearance of the catalog for each user so that, for example, a department secretary will not have to sort through lists of plumbing supplies.

Welty estimated that reduction of maverick buying can save five percent of a university's purchasing bill, and an increase in volume aggregation can save another two percent. What he calls "the automation factor" reducing the burden of paper and personnel, saves another eight percent, for a total savings of 15 percent. For a university that spends $100 million a year on purchasing, these strategies could result in savings of $15 million, in exchange for a yearly subscription fee that ranges from $200,000 to $350,000.

"Education can benefit as much or more" than other organizations from online purchasing, Welty said.

Looking Ahead

Although purchasing is still largely a paper-intensive process for most universities, technological and cultural advances are slowly pushing operations toward purchasing in cyberspace. For example, digital certificates are slowly becoming accepted as online "signatures" for verification of contracts, purchase orders, and other documents. Companies such as VeriSign provide authentication for these digital certificates. As digital certificates become more widely accepted, they will break down barriers to paperless purchasing.

Just as important as improving technology is changing the culture from the long-standing expectation that purchasing involves rolling a three-part form into a typewriter.

"It is a huge cultural change," Welty said. "[Universities should] understand what is and is not possible. Some expect a panacea, and it takes something to get it going," he said. This includes the realization that a university will need to "spend money upfront to save money in the long run."

Welty also advises universities to protect themselves by doing their homework before undertaking a move to an online purchasing system.

"Plan and ask lots of questions. Talk to suppliers and analysts, get references. Nobody has been in business for years," he said. In the absence of a long history of work with online purchasing systems, companies should be subjected to a rigorous background check before you sign a contract.

Additionally, Welty points out that there has already been a cultural shift in other industries. "Education should be looking at how they can aggregate their supplier base into exchange opportunities or buyer consortium opportunities," he said. By working together, universities can enhance their purchasing power and lower their bills even more.

It will likely take some time before multipart purchase orders and cumbersome procedures are replaced entirely by online orders. However, universities can certainly look forward to the day when making a purchase is as easy as turning on a computer.

Jennifer C. Patterson is an independent writer based in Centerville, Ohio, who specializes in higher education and technology issues. She holds a master's degree in college student personnel services from Miami University and has worked as a registrar, academic adviser, admission counselor, financial aid counselor, and instructor. She can be reached at jcpatterson@prodigy.net.

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